Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Cerecor Inc. (NASDAQ:CERC)? The smart money sentiment can provide an answer to this question.
Cerecor Inc. (NASDAQ:CERC) investors should be aware of an increase in enthusiasm from smart money in recent months. CERC was in 4 hedge funds’ portfolios at the end of September. There were 3 hedge funds in our database with CERC holdings at the end of the previous quarter. Our calculations also showed that CERC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David Harding of Winton Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now we’re going to review the recent hedge fund action surrounding Cerecor Inc. (NASDAQ:CERC).
How are hedge funds trading Cerecor Inc. (NASDAQ:CERC)?
At Q3’s end, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from one quarter earlier. By comparison, 3 hedge funds held shares or bullish call options in CERC a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Armistice Capital, managed by Steven Boyd, holds the number one position in Cerecor Inc. (NASDAQ:CERC). Armistice Capital has a $68 million position in the stock, comprising 4.5% of its 13F portfolio. The second most bullish fund manager is James A. Silverman of Opaleye Management, with a $7.2 million position; the fund has 2.6% of its 13F portfolio invested in the stock. Other professional money managers that are bullish comprise Israel Englander’s Millennium Management, David Harding’s Winton Capital Management and . In terms of the portfolio weights assigned to each position Armistice Capital allocated the biggest weight to Cerecor Inc. (NASDAQ:CERC), around 4.51% of its 13F portfolio. Opaleye Management is also relatively very bullish on the stock, dishing out 2.6 percent of its 13F equity portfolio to CERC.
Consequently, key money managers were leading the bulls’ herd. Millennium Management, managed by Israel Englander, created the most valuable position in Cerecor Inc. (NASDAQ:CERC). Millennium Management had $0.3 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also made a $0.1 million investment in the stock during the quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Cerecor Inc. (NASDAQ:CERC) but similarly valued. We will take a look at OP Bancorp (NASDAQ:OPBK), The Eastern Company (NASDAQ:EML), PCTEL, Inc. (NASDAQ:PCTI), and Fulcrum Therapeutics, Inc. (NASDAQ:FULC). This group of stocks’ market valuations are closest to CERC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| OPBK | 4 | 16591 | 0 |
| EML | 6 | 44010 | 0 |
| PCTI | 14 | 30470 | 7 |
| FULC | 7 | 16168 | 7 |
| Average | 7.75 | 26810 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.75 hedge funds with bullish positions and the average amount invested in these stocks was $27 million. That figure was $76 million in CERC’s case. PCTEL, Inc. (NASDAQ:PCTI) is the most popular stock in this table. On the other hand OP Bancorp (NASDAQ:OPBK) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Cerecor Inc. (NASDAQ:CERC) is even less popular than OPBK. Hedge funds clearly dropped the ball on CERC as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on CERC as the stock returned 14.6% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
